NBER Working Papers and Publications
|August 2006||The Forward Market in Emerging Currencies: Less Biased Than in Major Currencies|
with Jeffrey Frankel: w12496
any studies have replicated the finding that the forward rate is a biased predictor of the future change in the spot exchange rate. Usually the forward discount actually points in the wrong direction. But virtually all those studies apply to advanced economies and major currencies. We apply the same tests to a sample of 14 emerging market currencies. We find a smaller bias than for advanced country currencies. The coefficient is on average positive, i.e., the forward discount at least points in the right direction. It is never significantly less than zero. To us this suggests that a time-varying exchange risk premium may not be the explanation for traditional findings of bias. The reasoning is that emerging markets are probably riskier; yet we find that the bias in their forward rates is s...
Published: Frankel, Jeffrey & Poonawala, Jumana, 2010.
"The forward market in emerging currencies: Less biased than in major currencies,"
Journal of International Money and Finance,
Elsevier, vol. 29(3), pages 585-598, April.
citation courtesy of